How to earn risk-free returns on your investment

The Post Office Monthly Income Scheme (PO MIS) appeals to conservative investors with traditional values, and for good reason. This scheme offers monthly income and is a safe, guaranteed-by-the-government option. For retirees, widows and others looking for a steady income, it can be ideal. Even young investors who are comfortable with steady and risk-free returns (at 8 per cent per annum but taxable) can opt for this scehme.

Read on to learn more.

This scheme is offered by Indian Post Offices. A lumpsum amount is deposited with the post office and monthly interest earned each month is paid out to you.

As the scheme is offered by post offices, it is backed by the government. Thus, the PO MIS is one of the safest investments available.

Interest

The rate of interest offered on PO MIS is 8 per cent per annum (year). Interest is paid out every month but direct credit to your bank account remains a problem as Post Offices are not that technologically advanced in India, as such one needs to go and collect the monthly income from the PO directly.

However if you have a savings account in the same post office then interest can be credited directly to your account. A 5 per cent bonus is paid on maturity of the fund, therefore, the effective yield works out to 8.9 per cent per year.

The interest earned is fully taxable. There is no tax deducted at source (TDS). The investment in PO MIS is exempt from wealth tax.

Click NEXT to read if you are eligible to invest in PO MIS.

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Only individuals can invest in PO MIS. You can either open a single or joint account. A non-resident Indian (NRI) or Hindu Undivided Family (HUF) cannot open a PO MIS account.

Investment limit

There is an upper limit on investment in a PO MIS scheme. You cannot invest more than Rs 4.5 lakh in a single account. If you invest jointly (2/3 names), the limit is Rs 9 lakh. The minimum investment is Rs 1,500.

Duration

The tenure of PO MIS is 6 years -- your investment is locked in for this time period.

Number of accounts

Any number of accounts can be opened, but the total investment cannot exceed the upper limit across all the accounts.

Nomination

You can specify the nominee at the time of opening the account, or at any time later.

Premature withdrawal, encashment, closure & penalty

Premature withdrawal of the invested amount is allowed after one year of opening the account. If the account is closed between 1 and 3 years of opening, 2 per cent of the deposited amount is deducted as penalty. If it is closed after 3 years of opening, 1 per cent of the deposited amount is charged as penalty. The bonus amount is forfeited when you close the account early.

Investmentyogi.com is a one-stop personal finance website which helps in managing finances, investments and taxes through services like financial planning, online tax filing, budgeting and 'Ask the Expert'.